Shareholder-rights firms circling as Daktronics postpones earnings report
Daktronics is a Brookings-based scoreboard manufacturer. The company has been in business for over 50 years. (Courtesy of Daktronics)
Multiple law firms specializing in shareholder rights are inviting affected investors to contact them after a regulatory filing raised concerns about the finances of Brookings-based Daktronics.
Shares of the company tumbled after it announced Tuesday that it was postponing its earnings report and also rescheduling a conference call about the report to 10 a.m. Central on Monday. The company’s stock fell 39% after the filing, and Daktronics stock was down again in early trading Thursday, slipping to as low as $1.90 per share.
Daktronics filed paperwork with the Securities and Exchange Commission that cited “the discovery of a material weakness relating to the lack of adequate and appropriate financial reporting.” The company also referenced “ongoing supply chain disruptions and inflationary challenges in materials, freight and personnel related costs.”
The news was met with at least four announcements from law firms specializing in shareholder rights on Business Wire, a press release service operated by Berkshire Hathaway.
One of the releases came from Schall Law Firm, which bills itself as a firm that “represents investors all over the world who have been harmed by securities fraud and corporate malfeasance.”
“The investigation focuses on whether the company issued false and/or misleading statements and/or failed to disclose information pertinent to investors,” the release said.
Daktronics is one of South Dakota’s best-known success stories and is an anchor business for the community of Brookings. Since its founding 54 years ago in a garage by two engineering professors at South Dakota State University, the company has become a leading manufacturer of scoreboards, LED screens and other displays across the country, including professional sports teams. Daktronics became a publicly traded company in 1994.
Daktronics’ footprint includes about 2,500 employees worldwide, with more than half of those in South Dakota.
Company co-founder Aelred “Al” Kurtenbach was inducted into the South Dakota Hall of Fame in 1992. The professor-turned-entrepreneur was inducted into the Information Display & Entertainment Association Hall of Fame in 2019.
The company’s annual report for 2022 noted that major display sales to the NBA’s L.A. Clippers and Real Madrid soccer club helped drive an “all-time order record of $846 million for the year.”
But that same annual report pointed to yearslong struggles with a pandemic-impacted supply chain and inventory management. Revenues dropped by $127 million in fiscal year 2021 – a time frame during which layoffs were announced – before bouncing back in fiscal year 2022. That bounceback amounted to $129 million, $2 million more than was needed to cover its losses from the previous year.
“For a manufacturer, this stressed our capacity and operational planning,” President and CEO Reece Kurtenbach wrote in the report. “In addition, our production levels were frequently disrupted by varying supply chain challenges. Semiconductor parts, including integrated circuits and other components needed for production, have had sporadic availability because of allocations, slowed transportation, and continued COVID restrictions in certain geographies.”
The report also noted a negative cash flow from operations of $27 million – the company’s first negative cash flow for that line item since fiscal year 2018. The company reported a product backlog of more than $472 million, nearly double its backlog figure from the previous year and more than double any previous backlog during the past five years. Gross profits were also at a five-year low.
In August, the company admitted it faced challenges because of COVID-19, with many employees working remotely and entire floors of some buildings sitting empty.
“I think it’s true that the pandemic kind of picks and chooses how it impacted different areas, and we saw that in our businesses, as well,” Reece Kurtenbach told SDPB.
Daktronics stock traded at more than $35 per share in 2006 but plummeted in 2008 during the Great Recession. The share price has fallen nearly 80% in the last five years and is down 65% in the last year.
Daktronics said in the new SEC filing that its plans include “obtaining financing secured by a mortgage on our facilities, a sales-leaseback transaction, leasing property and equipment, and continued focus on reducing working capital.”
“Since these plans are not finalized and are subject to market conditions that are not within our control, they cannot be deemed probable,” the report reads. “As a result, we have concluded that our plans do not alleviate substantial doubt about our ability to continue as a going concern.”
Brookings Mayor Oepke “Ope” Niemeyer was hesitant to discuss the matter Thursday but did express concern about the company.
“It’s not been an easy road for them,” Niemeyer said.
In other news, the Daktronics Board of Directors expanded to eight members with the appointment of Howard Atkins, announced Wednesday.
“The Board has expanded our ongoing refreshment to support the company’s long-term growth and value creation strategies,” Reece Kurtenbach said in the Wednesday news release.
Daktronics did not immediately respond to a request for comment.
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